In the latest step towards curbing money laundering cases associated with Cryptocurrencies, the Finance Ministry released a circular on 7th March 2023. In this circular, the ministry informed that all Virtual digital assets (VDA) would now come under the PMLA Act, 2002.
What does it mean for you as an investor in Crypto and NFTs?
Let's know through this blog.
About PMLA Act
PMLA stands for Prevention of Money Laundering Act. It represents an act built to prevent money laundering and fight against the process of converting black money into white. It allows government authorities to seize any asset earned from illegal sources or ways.
The act was first amended in 2002 and came into force three years later in 2005. Since then, it got amended multiple times in 2009, 2012, and 2019. Banking companies, financial institutions, and other intermediaries verifying client data and maintaining records come under this PMLA Act.
Crypto Under PMLA
The Union Ministry of Finance recently brought VDA (Virtual Digital Assets), including Cryptocurrencies and NFTs, under the Prevention of Money Laundering Act (PMLA) on 7th March 2023.
Below are the key highlights of this move-
- The VDA service providers in India ( Cryptocurrency Exchanges, Custodians, and Wallet service providers) have now become "Reporting Entities" under PMLA. They will now follow the same reporting standards that banks, payment system institutions, and security entities follow.
- All the reporting entities dealing with VDAs will now be required to perform a mandatory KYC of all their users and maintain the data.
- All reporting entities will have to maintain a record of all VDA transactions that took place through them for at least five years.
- While operating, if the reporting entities find any suspicious activity, they have to report it to the Financial Intelligence Unit India (FIU-IND).
NOTE: Flitpay has been doing a mandatory Instant KYC verification for all its users to ensure a secure trading environment for them. It only takes a few minutes and steps to complete your KYC verification on Flitpay.
The VDA-related activities covered under the PMLA guidelines are-
- Exchange transactions between VDAs and Fiat currencies
- Trades involving one or more forms of VDA
- Transfer of VDAs from one wallet to another
- Storing of VDAs
- Participation in the sale of any VDA
But what was the need to bring all types of crypto coins and tokens under the PMLA Act?
VDAs operate in an unregulated environment due to their decentralized and anonymous nature.
Due to this reason-
- Tracking the trail of cryptocurrency transactions is extremely challenging.
- The notorious bad actors can take advantage of the unregulated nature of crypto to perform illegal money laundering transactions, frauding and terrorist funding.
- Agencies were unable to take necessary action and investigate faulty crypto-related entities.
The Reaction of Indian Crypto Businesses
The Indian Crypto Industry has taken this news positively as a significant step towards Crypto getting deserved recognition from the Indian government. As most Crypto institutions take several precautionary measures to filter out illegal transactions, the new guidelines did not surprise them. The Indian Crypto industry showed excitement for being officially entitled to prevent the misuse of Crypto.
What's Next?
Since the laws against crypto laundering have become stricter, the fraudsters will now fear being penalized and even jailed for using crypto to execute illegal transactions. Crypto investing and trading will also become more streamlined and regulated, which may encourage more people to enter the crypto space.
The Indian Crypto institutions expect more progressive regulation guidelines from the finance ministry in the upcoming G-20 meetings. It also expects some relaxation in the heavy tax on crypto profit (30%) and TDS on selective crypto trades (1%) from the government.
